Anti-Foreign Capital Atmosphere in Local
Governments and Their Regulative Measures
-Understanding the Undercurrents of
Indian Political Economy
V.C. Vivekanandan*
< CONTENTS >
Ⅰ. The Swadeshi- Videshi foundation of the Indian Independence movement
Ⅱ. The Political –Economic Dichotomy of FDI
Ⅲ. The Regulatory Quagmire in FDI Growth – Where it hurts?
Ⅳ. Can the Elephant Dance- summing UP
I. The Swadeshi-Videshi foundation of the Indian
Independence Movement
Indian Independence movement, which gathered momentum in the 1920’s under the
leadership of Mahatma Gandhi, is the biggest peaceful resistance movements against
colonial rule to date in the modern history of emergence of Nation States. The strongest
foundation of such resistance movement had the plank of ‘swadeshi’ movement in the
period of 1903-1908. The short version of the conceptual history of ‘swadeshi’ is that of
* Ministry of Human Resources & Development (MHRD) Govt. of India IP Chair Professor at
NALSAR University of Law, Director- Legal Information Institute of India – www.liiofindia.org,
Adjunct Visiting Professor, University of Buffalo, Business School, NY.
(Received October 21, Revised November 1, Accepted December 13)
慶熙法學 제47권 제4호 | 2012
the boycott of British Goods and reliance on ‘Indian goods’.1)
Later Mahatma Gandhi – who emerged as the mass leader of the Indian Freedom
Movement sharpened it as a political- economic tool to complete his mission of gaining
independence2) that had a lasting impact across the continuum of the intellectual elite to
the common citizen as a corner stone of ideological premise in the Post Independence
India. Nevertheless it should not be construed as a simplistic anti-western ideology rather
it was directed against the British Imperialism and the goal of self-determination. Parallel
to the political dimension of the ‘swadeshi’ fuel for self-determination there were attempts
by thinkers to bring in a ‘modern imaginary of geographical interface’ outside the British
net of imperialism. This led to the alliance with other resistance movements with Subash
Chandra Bose founding the Indian National Army3) to work in tandem with Hitler’s
Germany and the Axis power of Japan. On the intellectual plane it was not purely
‘swadeshi’ but one that of an interface with the ‘videshi’4) where in the field of arts and
science there were attempts to connect with the world happenings. In the run up to the
Independence movement, Gandhi theorized his ‘Swadeshi’ concept not as foreign vs. India,
rather as a economic concept of self reliance with ‘village’ as a central unit of production
and advocated not to alienate the self reliant unit of village with a central production at
a distant place within the country itself.5) However with the advent of Indian Independence
1) The Swadeshi movement, part of the Indian independence movement and the developing Indian
nationalism, was an economic strategy aimed at removing the British Empire from power and
improving economic conditions in India by following the principles of swadeshi (self-sufficiency),
which had some success. Strategies of the Swadeshi movement involved boycotting British
products and the revival of domestic products and production processes. See- http://en.wikipedia.
org/wiki/Swadeshi_movement.
2) The Swadeshi Movement started with the partition of Bengal by the Viceroy of India, Lord Curzon,
1905 and continued up to 1908. It was the most successful of the pre-Gandhian movements. Its
chief architects were Aurobindo Ghosh, Lokmanya Bal Gangadhar Tilak, Bipin Chandra Pal and
Lala Lajpat Rai. Swadeshi, as a strategy, was a key focus of Mahatma Gandhi, who described
it as the soul of Swaraj (self rule). Kris Manjapara- P 56, October 20, 2012 vol xlviI no 42,
Economic & Political Weekly.
3) see-http://india.gov.in/allimpfrms/alldocs/2630.pdf-visited on 24/10/2012.
4) The opposite of Swadeshi in Sanskrit is videshi or “not of one’s country”.
5) The Swadeshi model of economic development serves India at the exclusion of every other
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the two-decade leadership of Nehru abandoned the core of the Gandhian concept of
‘Swadeshi’ and went on with rapid industrialization with Government initiated ‘Public
Sector’ model as the recipe for development and in alleviating poverty. Often termed as
‘Nehruvian Economics’ among Indian scholars, it was premised on ‘mixed economy’ with
State investment and intervention which is an hybrid in those times between the dominant
‘free market’ models of western economies and the ‘state led economies’ of USSR- China
experiments.
Till the advent of the 1991 economic crisis, which led to the cautious yet big ticket
reforms initiated by Dr.Man Mohan Singh- the current Prime Minister and then Finance
Minister – it was Nehruvian doctrine which guided the successors from his family, Mrs.
Indira Gandhi, his daughter and grandson Mr. Rahul Gandhi. The break with the ‘Nehruvian
Doctrine’ though cautious in approach changed the foundations and romance with the
‘Gandhi- Nehru’ dichotomy of ‘Swadeshi’ foundation.
Since 1991- the push for ‘LPG’- Liberalization, Privatization and Globalization-had been
alternatively advocated and interpreted by the two coalition formations of the Congress
and BJP (Bhartiya Janata Party) between their governance from 1991- to till date. From
the macro trajectory point the ‘LPG’ fuel continuously burned between the two coalitions
led by Congress and BJP respectively. The tokenism of opposition of FDI stemmed from
the two major communist parties who also had a stake in the state governments of West
Bengal, Kerala and Tripura-the states they had political dominance. The political discourse
of liberalization for the last two decades was dominated by the sectoral opposition in FDI,
impact on employment, issues of land acquisition and corruption involved in the dealings
of the FDI and environmental impact and displacement of the landless and tribals. This
historical backdrop is essential to understand the context of liberalization and FDI as a
political-economic issue.
country, but does so in such a way as to not harm any other country in the process. Gandhi did
not propose to stand in the way of development with Swadeshi. He simply saw that India should
produce for itself those items that it could produce, and that India should not be reliant on foreign
commodities. In this way Gandhi sought to alleviate poverty and exploitation in India without in
turn exploiting another nation. Gandhi’s interpretation of Swadeshi was not against trade, but
rather saw trade as a solution to certain problems that was not to be used indiscriminately- seehttp://web.uvic.ca/~stucraw/Lethbridge/MyArticles/Swadeshi.htm-visited on 27/10/2012.
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2. The Political – Economic Dichotomy of FDI
The dream run of the Indian economic growth rate from 5.5% in 1995 to that of 9.2
% in 2006 has a checkered graph6) :
1999 2000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
India
5.5
6
4.3
8.3
6.2
8.4
9.2
9
7.4
7.4
10.4
7.2
In US million Dollars7)
The over all climate for FDI across all sectors had dipped only in 2010-11 but seems
to be on the rise again. The 2012 A.T. Kearney Foreign Direct Investment Confidence
Index has ranked India second most attractive destination for FDI, an improvement from
its third rank in the year 2010.
Under the extant Foreign Direct Investment (FDI) policy, FDI up to 100 percent is
allowed under the automatic route in most sectors/activities, except a few, where sectoral
equity/entry route restrictions have been retained. FDI, under the automatic route, does not
6) See- http://www.indexmundi.com/g/g.aspx?c=in&v=66- visited on 24/10/2012.
7) See- http://www.onemint.com/2012/05/11/does-the-record-8-1-bn-march-fdi-number-mean-anything/ visited
on 26/10/2012.
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require any approval and only involves intimation to the Reserve Bank of India within
30 days of inward remittances and/or issue of shares to non-residents.
Amount of FDI inflows for the financial year 2012-13 (for the month of July, 2012)
was US$ 1.47 billion. Amount of FDI equity inflows for the financial year 2012-13 (from
April 2012 to July 2012) stood at US$ 5.90 billion. Cumulative amount of FDI (from
April 2000 to July 2012) into India stood at US$ 176.76 billion.8) During July 2012, top
10 Sectors attracting highest FDI inflows were Services Sector (19 per cent), Construction
development: Townships, housing, built-up infrastructure* (12 per cent), Telecommunications
(7 per cent), Computer Software & Hardware (6 per cent), Drugs & Pharmaceuticals (5
per cent), Chemicals (other than Fertilizers) (5 per cent), Power (4 per cent), Automobile
Industry (4 per cent), Metallurgical Industries (4 per cent), Petroleum & natural gas (3
per cent).
The forecast for 2012 by major investor country reports predict a minimum growth of
6.7 % and making India as the third largest economy in Asia after China and Japan.
Dependent on services exports and private domestic consumption, according to the IMF,
India’s 2011 GDP registered a 6.8 percent increase reaching USD 1,843 billion with a
GDP per capita of USD 3,703. India’s 2012 GDP is expected to reach USD 2,072 billion.9)
Parallel to the economic transformation is that of the political dynamism which emerged
differently. The Indian political landscape had one dominant party ruling the Centre from
1947 to 1977. The Congress Party, which was originally the Indian National Congress
which spear headed the freedom movement and later had its splits inside, dominated the
political landscape. With a brief interruption of its power stake between 1977-1980 and
1989-1991 Congress ruled the country. However in its comeback term during 1991-96 it
had to be content with the outside support of members as it could not muster the pure
majority in the Parliament. The Bharatiya Janata Party (herein after referred as BJP) led
a coalition government since 1996 to 2004 keeping the Congress in opposition benches.
Since 2004 till date Congress managed to complete a term and in midst of a second term
with coalition partners under the rubric – UPA or United Progressive Alliance. Thus Indian
8) See- http://www.indiainbusiness.nic.in/investment/for_dir_investment.html- visited on 26/10/2012.
9) See- http://export.gov/india/build/groups/public/@eg_in/documents/webcontent/eg_in_049379.pdf- visited
on 26/10/2012.
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political landscape has changed drastically since 1996 and looks to have coalition model
in the predictable future.
Another aspect to be borne in mind for a pragmatic analysis is that of the change of
political landscape across India in the State level, which has a bearing on the formation
of Government in the Centre. Starting with the Dravida Munnetra Khazagam (DMK) in
1967 in Tamil Nadu, there is a strong regional party formation and sustenance intermittently
in states like Andhra Pradesh, Punjab, West Bengal, Maharashtra, Assam, Kashmir, Orissa,
Jharkand, Bihar, Tripura, Nagaland, Pondicherry, Uttar Pradesh, Haryana to name major
areas. As it is often said that ‘Good Economics is Bad Politics and Good Politics is Bad
Economics’ the art of governance in the Centre has undergone a paradigm shift without
a road map to rely upon.
The Congress party which could take unilateral decisions on public policy issues for
decades had to share their power and decision making process with the alliance partners
since 2004. FDI players found the momentum dipping down partly due to global recession
and partly to what they called as the ‘inaction’ of the Government since 2009. The inaction
has been confessed and explained by various voices of the government and finally by the
Prime Minister himself who confessed that they were unable to move forward in the
trajectory due to political compulsion. Prime Minister Manmohan Singh confessed:
“We have to evolve a broad-based consensus and we will work towards that. It’s my
hope that once the elections to the various state Assemblies are over, all political
parties can sit together, and we will then explore with them the possibilities of
implementing the decision which is placed on hold,” he said during a media interaction
on the way back from his two-day visit to Moscow.10)
The crux of the matter is apart from the rosy picture of the macroeconomics; the dark
belly of the other India has a different story to tell. The country accounts for the largest
10) “Our government stands committed to reforms as ever before. But there is such a thing as political
compulsion. We as the Congress Party do not have the majority and have to move at a pace,
whereby all our allies can be on the same page,” he said. See-http://www.indianexpress.com/
news/-political-compulsions-slow-pace-of-economic-reforms-/889061/0-visited on 26/10/2012.
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population under poverty anywhere in the world varying in estimates of 300 million to
800 million based on different index of poverty. The poorer segments certainly are not
amused to celebrate the FDI or GDP statistics. They were eager and happy to align with
those who can promise them relief on a day-to-day basis. Thus the electoral politics on
the ground level is one that of expediency and cannot have the luxury of nuanced theories
and long-term predictions. The country currently the largest democracy in the world has
a clear track record of periodical elections and has witnessed the revolt in ballot box. Hence
any entity in such race to stake power will rely on rhetoric, double speak and posturing.
The grand old party is no exception and need to match others to manage to stay in power.
Such situation has led to procrastination and inaction.
Thus it is a moot point whether anyone other than current Prime Minister would have
done better than him ? or could any other party would have been proactive and bold in
their decisions in these situations ? The number game is the ultimate reality in politics
and those who are professional in politics understand that ‘politics is the art of the feasible’.
One also needs to add the global recession’, euro crisis, flight of FII’s in south east Asia
as essential ingredients in the economic story of India in the last few years.
One can safely conclude that Anti- FDI climate at least in certain sectors is the result
of the multiple factors of political- economy intertwined with global factors and internal
dynamics of the Congress party
3. The Regulatory Quagmire in FDI Growth – Where it hurts?
The biggest dust and storm of anti-FDI climate has been generated in the last month
when the Government of India announced the FDI in retailing. The political alignment
itself has changed with erstwhile partner of the Government the TMC leaving the cabinet
and coalition and other coalition partners symbolically condemning the same.
Contrary to the perceptions that Indian policy makers and public are dead against any
FDI in retailing, the recent chronology portrays a different story. India is a signatory to
WTO agreement on Trade in Services and like many other agreements it was a case of
the cart before the horse and is struggling to comply with the letter and spirit of the
agreement. FDI in retailing in general has been there since 1997 when Indian Government
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allowed the FDI in cash and carry stores. They are typically wholesale stores the first
one being ‘Metro group’ in India in major cities. This FDI was allowed, as 100 % ownership
however required the approval of the appropriate authorities of the Government. After a
decade in 2006 it was brought under the automatic route without the mandatory government
scrutiny and approval. Similarly in the same year Government permitted 51% FDI in single
brand retailing. However the contentious issue was that of the FDI in multi-brand retailing
which exploded in September 2012 when Indian Government in principle allowed the same
with the caveat that it is up to the state governments to accept the same.
The uproar, which is a mixture of the political expediency and partly the legitimate
concern for the 97 % of unorganized sector, depended on the jobs for their survival had
split the political class on rival positions.
Another regulatory quagmire is that of the acquisition of land for FDI as well as domestic
investments, which have turned volatile in many states. The land acquisition laws in the
country had been archaic and have not kept in times with the liberalization era and lacked
equity in compensation for those who are dispossessed. Without a regulatory framework
in place the early phase of liberalization saw doling out of land without compensation
or rehabilitation, which in fact became a lucrative acquisition to be resold than the promised
industrialization. The last few years saw the surfacing of massive corruption charges and
unprecedented level of unscrupulous land deals by various actors in states spread across
the country. This had led to violent unrest and at times had affected serious players due
to lack of transparency in acquisition, non-rehabilitation of those dependent on land
resource and pittance for those who accepted such dispossession.
With the increasing volatile situation, the Government brought in the Land Acquisition,
Rehabilitation and Resettlement (LARR) Bill, 2011 that wanted pragmatic ways of
balancing the requirement of land for industrialization both for FDI and Domestic players.
The bill states the legitimate reasons for land acquisition as the above mentioned ones
and additionally defines the purview of the term ‘public purposes’ as the following:
1. Strategic purposes: e.g., armed forces, national security;
2. Infrastructure and Industry: where benefits largely accrue to the general public;
3. Land acquired for R&R purposes;
4. Village or urban sites: planned development -residential purpose for the poor and
educational and health schemes;
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5. Land for private companies for public purpose;
6. Needs arising from natural calamities.
However the PSC ( Parliamentary Standing Committee), which wets and modifies the
final content of the bill has proposed amendments which could further complicate the
acquisition without benefit for both the stakeholders of those who want to possess and
who could benefit in terms of alternate land or jobs.
Another regulatory mine field is that of the Labour Laws in the country, where the
unorganized sector can have a field day in terms of labour exploitation where as the
organizer sector will be tied up for genuine exit policies. The Indian Labour Laws designed
and entrenched in the socialist era has not innovated itself in the shift from the Public
sector empires to the competitive private sector dynamism. Another major issue put forward
by many economists and policy makers is the multiplicity of labour laws. Unification and
harmonization of the labour laws has been highly recommended by Debroy (2001, 2005).
He says that apart from the seventh schedule there are separate statutes for cine workers,
dockworkers, motor transport workers, sales promotion employees, plantation labour,
working journalists and workers in mines. There are varied definitions on child, contract
labour, wages, employee, workman, factory, industry, etc.11)
The crucial issue on FDI is that of the Intellectual Property Rights regime. India as
a signatory of TRIPS agreement has enacted the necessary legislations across the segments
of the IPR. In fact it has its innovative Protection of Plant Varieties and Farmers Rights
Act (PPVFR) a sui generis legislation. The important issue is that of the multiplicity of
ministries, which look into the legislative-regulatory issues of IPR. The copyright regime
is administered by the Human Resources Development Ministry, the Patents regime by
the Ministry of Commerce, the PPVFR regime by the Agriculture Ministry, the Integrated
circuits Act by the Information Technology Ministry. Such multiplicity of controls and
regulations can work at cross-purpose and may lack an holistic approach to the regulatory
requirement. The capacity building exercise of Patent regime in terms of examiners, agents
and lawyers are in adequate to the demanding needs of the Industry and specialized courts
are a need to infuse a technology – law mandate in the field of IPR.
11) See-atlmri.org/index.php/downloads/doc.../24-discussionpaper-5- visited on 27/10/2012.
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Another aspect of the regulatory quagmire is that of the transparency in public dealings
and accountability of the government agencies. A comparative political analysis will show
that India is not alone in the political upheavals of corruption and the fall out on Economy.
The worrisome analysis is the newly acquired character of the nation in terms of dealing
with the new found growth of liberalization in terms of corruption. Again corruption is
as old as Greek mythologies and has its periodic storms hitting Asian entities. Yet the
last decade of track record of corruption in India is a new form of silent oppression to
many citizens. What is often dubbed as ‘Crony Capitalism’ has acquired a new stature
and record in the recent years.
Rank
Country
2011
*
Index
2011
2010 2009 2008 2007 2006 2005 2004 2003
20
95
India
3.1
3.3
3.4
3.4
3.5
3.3
95
Kiribati
3.1
3.2
2.8
3.1
3.3
3.7
95
Swaziland
3.1
3.2
3.6
3.6
3.3
2.5
2.7
2.9
2.8
2.8
2.7
2.5
2.8
95
Tonga
3.1
3.0
3.0
2.4
1.7
100
Argentina
3.0
2.9
2.9
2.9
2.9
2.9
2.8
2.5
100
Benin
3.0
2.8
2.9
3.1
2.7
2.5
2.9
3.2
100
Burkina Faso
3.0
3.1
3.6
3.5
2.9
3.2
3.4
100
Djibouti
3.0
3.2
3.0
2.9
*Transparency International 2011 rankings of corruption in countries
This certainly erodes the confidence of FDI flow as the original intent of the investments
tends to get stuck in the non-transparent practices, which may eventually wipe out the
enterprise. India has enacted the Right to Information Act which has started to bring out
the issues in the open, yet the mechanism of an ombudsman type of regulatory framework
known in India popularly as ‘Lok Pal’ has still eluded legislation due to various
stakeholders pulls and pressure.
In the Independent India, the last few years can be portrayed as the near obliteration
of the image of the political class, which was revered in the past for leading the country
to independence. This ‘trust deficit’ also dents the image of the FDI players as part of
the chain of exploiters and popular sentiment could tarnish the entire FDI players with
the same brush. This also levitates an intellectual section toward armed revolution of
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cleaning up the system. In fact Central India and parts of East India the rise of armed
ideological groups is a fall out of the corruption and its exploitation of the poorest of
the poor at the end of the chain.
4. Can the Elephant Dance - Summing UP
India is a space for one among the seven inhabitants of the World. It has all the
ingredients to contribute to itself and to the World. Dubbed as the crouching tiger in
comparison to the Chinese Dragon or independently dubbed as the ambling Elephant which
can dance is seen as trapped in its own folly in the last couple of years. All the statistics
for emerging as a power to reckon with in the last few years has not added up to the
required algorithm of the future. It has a technological heritage, the business acumen and
yet struggles to find its destined place. The hope is still that of its open society, more
than aggressive media, conscious civil society groups and emergence of knowledge thirsty
young generation. The tipping point is its ability to quickly adapt the global good practices
of regulatory and legal framework as part of its economics and politics. The key to the
puzzle is that of formulating effective regulatory framework and adherence to the same.
This requires re-inventing itself to infuse public ethics beyond the kinship of family or
other strong social foundations, which India is admired for.
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